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#2180122 - 05/30/18 02:15 PM HMDA Reportable?
lncompo Offline
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We have a loan to purchase a dwelling that will be converted to a church, however the contract states that the current owners will lease the property for 3 months to allow time to close on new home and move out. Would you report this since for now it will still be used as a dwelling? Thank you.

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#2180127 - 05/30/18 02:24 PM Re: HMDA Reportable? lncompo
Adam Witmer Offline
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You may get differing opinions on this, so I will be interested to see what others say. My thought is that you would report it as it currently is a dwelling and will be used as a dwelling (at least for a little while).
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#2180141 - 05/30/18 03:23 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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I agree....the intent is for use as a dwelling, at least temporarily. My opinion would be radically different if that component didn't exist.
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#2180144 - 05/30/18 03:26 PM Re: HMDA Reportable? lncompo
Truffle Royale Online

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I'm leaning towards disagreeing.
The borrower's intent is to purchase and convert, per their application.
I don't think what the sellers are doing changes that.

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#2180145 - 05/30/18 03:27 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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I'm taking the original post to mean that the buyers will rent/lease the home for 3 months to the current (pre-loan) owners.
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#2180146 - 05/30/18 03:28 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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So it's what the BUYER, not the seller, will do with the property. The buyers will rent to the sellers for 3 months.
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#2180148 - 05/30/18 03:36 PM Re: HMDA Reportable? raitchjay
lncompo Offline
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Right, the buyers/borrowers will rent to the sellers for 3 months.

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#2180247 - 05/31/18 03:42 AM Re: HMDA Reportable? lncompo
Truffle Royale Online

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I still disagree.
I'm betting the rent back is a condition of the offer to purchase.
The buyers aren't renting in the true sense of the word.
Especially in today's market, closings are happening almost too quickly for all the pieces to line up so everyone closes and moves on the same day.
The buyers aren't purchasing to rent.
The sellers won't sell if they can't stay till they close on their next home.

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#2180262 - 05/31/18 12:34 PM Re: HMDA Reportable? lncompo
RR Joker Offline
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That's a contract option typically in the sales contract. That's the seller's 'we will sell if' stipulation. The BUYERS aren't buying the property to rent out...but rather, they can't go forward with their project until the contract stipulation is complete, even though the loan, itself, closed.

And oops...yeah, what TR said in post above mine smirk
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#2180263 - 05/31/18 12:36 PM Re: HMDA Reportable? lncompo
Dan Persfull Offline
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We have a loan to purchase a dwelling that will be converted to a church, however the contract states that the current owners will lease the property for 3 months to allow time to close on new home and move out.

I would not report this loan based on this comment concerning the property's intended use by the buyers. The sellers temporarily remaining in the home until they close on their new home is not a factor in this case IMO.
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#2180266 - 05/31/18 01:42 PM Re: HMDA Reportable? lncompo
Tracey, CRCM Offline
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I agree with Dan. Reporting should be based on what the loan looks like when it closes. This loan closes with the buyers converting the property, so I wouldn't report it. The current owners staying has nothing to do with it.
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#2180267 - 05/31/18 01:43 PM Re: HMDA Reportable? lncompo
Adam Witmer Offline
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As I said initially, there are differing opinions on this because the HMDA guidance is muddy (at best) on this topic. Most on BOL take the "forward use" approach to a structure meaning that you look at what the structure will be used for. This approach aligns with the bigger purpose of HMDA which is to help show whether lenders are serving the housing needs of their communities. Basically, a house that is being converted to a church is not helping to meet the housing needs of the community.

That said, the CFPB has replied to some (including me) stating that you should look at what the structure is "at the time the loan is made." The CFPB has quoted an old mysterious (and informal) Fed opinion and those in this camp can quote the preamble to the 2015 final rule that basically says: "“a loan to an individual” …. “to improve a single-family home to be used”… “as a professional office”… is “currently” … “reported.” The problem I generally have with this "hard line" camp, however, is that it does not help to serve the housing needs of the community - which is the point of HMDA.

The caveat in this specific scenario is that the dwelling will be used as a dwelling for a while after closing - which is a slightly different situation from what is normally seen. However, Joker makes a great point as this is part of the sales contract as a seller stipulation. I see this in my area when the local university buys a dwelling to raise it for expansion purposes, but provides the owners a few months to find a new place. In these cases, the loan (if there was one) purpose isn't to help to support the housing needs of the community; it is to buy property to expand the university.

In rereading the OP, I must have read it too quickly (or maybe it was edited?) as I wasn't thinking rent was part of the sales contract for the owners to have extra time before moving out. For some reason I had in my mind that there were renters in the house to fill a gap before conversion (which would be a completely different scenario IMHO).

Therefore, if the lease provision is just a seller stipulation, I would fall in the forward-use camp and not report this.

Still - keep in mind that there will be differing opinions on this as there could be an argument that the structure is a dwelling "at the time the loan was made." You will want to be consistent in how you handle forward-use purpose loans and document your files thoroughly.
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#2180274 - 05/31/18 02:38 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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Well, when the loan closes, the home is being leased--so i don't understand the 'report it the way it looks when it closes' comment really (if you're reporting based on 'how it looks at closing' it 'looks' like a home that is being leased). I don't really see why it matters WHY the home is being leased (because the contract says so).....at loan closing, the home will still be a home and will be leased.
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#2180278 - 05/31/18 02:44 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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How is this different than someone buying a home, planning to convert it to an office in a few months or a year....but in the meantime, they intend to rent it out as a home? The buyers in this case might prefer to start right away, but they aren't going to be able to. So they do INTEND to rent/lease it out in the interim.
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#2180315 - 05/31/18 04:53 PM Re: HMDA Reportable? lncompo
Truffle Royale Online

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I don't read it as they don't 'intend' to rent at all, raitchjay.
They simply aren't taking possession at closing and the seller is compensating them for that delay.
There's no lease and the contract likely has this written as a per diem charge to encourage the sellers to move sooner rather than later.
If they're out in 59 days, then they pay 59 days at the per diem rate rather than the full three months allowed in the OTP.

Let's look at this from a different angle.
How was the file underwritten?
If you HMDA report this as a leased dwelling, did you underwrite it as an investment?
HMDA isn't independent of the rest of the file.
Rather it requires the rest of the file to support what you're reporting.

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#2180318 - 05/31/18 04:59 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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"the contract states that the current owners will lease the property for 3 months"

If that's not what the contract truly states, then the OP needs to let us know.
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#2180329 - 05/31/18 05:16 PM Re: HMDA Reportable? lncompo
raitchjay Offline
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Look, if this is not truly a "lease", but just daily compensation that the buyer will pay for delayed release of the property, then i would agree. I don't guess i'm that familiar with such provisions in contracts.
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#2180331 - 05/31/18 05:23 PM Re: HMDA Reportable? lncompo
David Dickinson Offline
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I would not report this loan. I go with the "forward approach" as Adam called it. I've been using that logic since the 2004 changes and have never had any clients have problems with examiners.

I don't think a contract provision changes the HMDA status.
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#2180339 - 05/31/18 05:42 PM Re: HMDA Reportable? raitchjay
lncompo Offline
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The file was not underwritten as an investment property, everything in the file indicated it would be used as church property, not a dwelling. The addendum to the contract was not caught originally. The addendum is called 'Seller's Temporary Residential Lease' and states that it should only be used when the seller occupies the property for no more than 90 days after closing. It also states there will be no charge for the first 30 days and x dollars a day thereafter.

I apologize for not including this from the beginning. Thank you.

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#2180344 - 05/31/18 06:12 PM Re: HMDA Reportable? lncompo
Truffle Royale Online

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I've seen quite a few of these rent back provisions and they're usually a safeguard if/then type of thing. IF the seller doesn't give occupancy at time of closing THEN they will pay 'rent.' Incompo, you used '...states it should only be used...' so just out of curiosity, do you know if it was actually used or was your question triggered by reading the addendum?

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#2180357 - 05/31/18 06:53 PM Re: HMDA Reportable? Truffle Royale
lncompo Offline
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Loan has not closed yet but it is my understanding that the seller does intend to reside on the property up to the 90 days allowed while they close on new home and get moved out.

I was just trying to better describe the addendum doc, that verbiage was under the title, 'Seller's Temporary Residential Lease', so I took it to mean that they (title company) could only use that addendum if the lease provision was 90 days or less, it was attached to the contract drawn up by title company.

We had not run into this before so I was thinking like raitchjay that a 'lease' in place at closing could make this reportable. Then I thought well that is not what property will be used for and not the point of HMDA, thank you for your help.

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